That’s what I was missing.
I unchecked Step 3, added 25K to Non-registered investments and 25K to HELOC starting value and everything makes sense now.
Thanks again!
The SM Spreadsheet is great!

William

Sometimes when you create something that is comprehensive, you also make it complex. I admit I haven’t spent a lot of time adding instructions to it so it won’t be as intuitive to anyone else but me.

If you don’t want the investments to be applied to the principal then you must make sure you do not have Step 3 checked. This option, when checked, assumes you already had some investments (I believe it was GIC’s in Fraser Smith’s book) that you would sell, take the proceeds and reduce the principal, and then borrow the principal back to invest in something else – likely equities.

Make sure you look over all of the check boxes, radio buttons, etc. to ensure they apply in your situation.

As I don’t have an investment portfolio, the initial amount I will have to invest is the 25K lump sum from the HELOC (from your example).

If I use the 25K as Non-registered Assets, it gets applied to the Principal Amount and then shows up on the Investments. This doesn’t work for me because I haven’t actually reduce the principal.
On the other hand, if I use the 25K as HELOC Starting Value, it doesn’t show up on the Investments.

Am I missing something? Can you please tell me how I input the 25K lump sum from the HELOC as initial investment

Thanks again!

William

You are welcome.

It has been so long since I looked at the original but, yes, it is different. They are independent but connected. So, you will need to add whatever your initial investments are to the mix.

In most cases, your HELOC starting balance will equal your investment starting balance but not all. This was as a result of a discussion I had with Ed Rempel and it makes sense. Many of his clients come to him already with an investment portfolio so you would add that to this calculator (e.g. you come in with $50k of investments, and you take out a lump sum of $25k from your HELOC and buy another $25k of investments. Your non-registered assets would start with $75k instead of $25k.)

In fact, you can use this spreadsheet simply as a mortgage amortization schedule… or you can forego anything to do with mortgage and use it for projecting investment growth. It doesn’t have to be about the SM so I tried to make it more flexible.

I hope this helps…

Thanks a lot for making the latest version of the SM Spreadsheet available to all. It’s really a great tool!

I guess something is not working the way it should. When I enter the “HELOC Starting Value” it’s not added to the “Investments” in the “Calculations” sheet.

In a previous version of the calculator it use to work like I’m describing, and it makes sense because I will have around 31% equity when I start the SM which means I will have 11% credit available in the HELOC ready to invest. I will be investing 10% from the HELOC which will make it the “HELOC Starting Value”.

Did the way of inputting this situation change on this latest version of the SM Spreadsheet?

Thanks again for the great calculator!
William

Thanks for the ‘interest’ in the calculator. There are other errors that are more significant but I attempted to build a calculator that gave me better insight into how the SM worked and could duplicate the answers in Smith’s book. As a result I discovered some issues with the results put into his book.

The most serious one is that the calculator I posted uses the same method to calculate investment growth – monthly compounding. I have a problem with that because when I think of 8% growth on an investment I think annual compounding. However, this is one of the concessions I made to get the same answers as in Smith’s book.

I did get in contact with his company to highlight some calculation errors that I believe I discovered (I don’t have his calculator but others have done calculations for me) but I don’t know if they have updated the calculator or not.

Feel free to email FT the details of the scenario you are trying to calculate and I will run the results through my latest commercial calculator and send you the complete output (input page and calculations page).

As I said before, I used a vlookup to basically search for 12/31/Year-1 and that seems to work well.

And I did forget to mention that it was the biweekly payments schedule that I was looking at.

The index function is set to only bring back 26 rows when calculating the tax refund. (I think)

It was because the calculation for the tax refund didn’t use the cumulative interest payments for the year (it used the cumulative interest for 1 period earlier).

The example I used was 225,000 down, plain jane SM, with no other payments, etc. everything else stock. I noticed the error for the 7/1/2019 period.

Sorry, this sounds a bit disjointed, but again, I wasn’t too sure how he calculated (using the Index function). I changed it to use VLOOKUP for 12/31/XXXX.

It’s odd that someone would say that the CRA is ‘pretty pissed’ with people who do this manueouvre. I would suspect that is an interpretation of the unfortunate things that happen when a taxpayer doesn’t _correctly_ follow the Smith plan.

Surely our government has nothing against the Smith plan in principle – it knows that more investment put into things that will produce income will inevitably produce even more income, and more tax eventually collected all around.

The Smith Maneouvre is not sneaky or underhanded in any way. It’s no more likely that the CRA people are ‘pissed’ when you put money into your RRSP instead of paying 40% of it in tax. There again, our government knows that if we were to invest carefully in a retirement plan now, we will be someday be a source of tax revenue instead of a drain on the economy.

I won’t go so far to say that the CRA is your friend, I am only saying that retirement in poverty runs counter to their interests, too.

Randy

adding onto my first question: suppose the mutual fund that I invest my mortgage principal in has a bad year and does not declare dividends . What happens with respect to taxation ??

Thanks
Sam

thanks for the reply. I had just one more question. I’ve read a couple of forums and I see that CCRA is pretty pissed with people who do this maneouvre. Has anyone here actually implemented this for at least a year or two ??

Thanks
sam

DAvid

I’m very new to this whole thing so pls forgive me if i put something out of context. I’m considering smith Manoeuvre and needed some help. my situation :

mortgage: 224500 /1 yr old/5.2%/ 1YR TERM 24 yrs amortization left.with scotiabank.

I spoke to a banking officer who told me that they could bump the whole thing for me a total line of 240000.(i’m sorry if this is not too informative, they just got pissed when I mentioned SM and were pretty reluctant after).The interest on the LOC is prime.

If i understand SM correctly :
1) I plan to take out 10,000 and invest in the scotia canadian dividend fund in a non-regd acct.

2) with every mortgage payment i make , the principal will be directed to increasing the line of credit. The principal less the interest due on the LOC will be withdrawn and invested in the fund.

3) All dividends, tax refunds etc will be used to reduce the mortgage principal.

This goes on till the mortgage is 0 and LOC balance is equal to the original mortgage principal.

I would greatly appreciate any input,advice or recommendations on the same.

Thank you
Sam

DAvid

An article in the NEW IN HOMES section in the Toronto Star was published Yesterday (March 15/08) which alarmed me.

The article is called “Seek advice before making mortgage manoeuvre.

My major concern is the following quotation from the article:

“Under CRA Rules, interest paid on money used from a mortgage to produce capital gains is not tax deductible. As a result, if a Smith Manoeuvre loan is used to buy stocks mainly for the purpose of capital appreciation, the interest is not tax deductible.“

I wrote to Fraser Smith for his comments.

Neil

“